Two and a half years after Jared wrote this, and there is still no sign that the economy has reached "full employment", or that the pace of wage and price growth is even beginning to spiral upwards. Thus he Federal Reserve continues to work with a model of the economy in which we should have very little confidence, if any: Jared Bernstein (2016): Important new findings on inflation and unemployment from the new ERP: "The 'Phillips curve'... negative correlation between inflation and unemployment...

...Peak correlation occurred in the early 1990s, but the relationship has weakened since then, and the end of the figure shows that unemployment explains almost none of the variation in inflation in recent years.... Over the full period... a one point increase in unemployment led inflation to fall by -0.4 percentage point. But... by the end of the period, it too is just about zero.... The natural rate a) has been falling for a while, and b) is hard to pin down to a reliable point estimate. For those of us who were always suspicious that a "natural rate" could be identified accurately enough to guide policy, the mid-1990s were highly instructive....

What you're left with is a point estimate for the natural rate of around 4.5 percent surrounded by a 50-percent confidence band that in 2014 ranges from –4.3 to 6.1.... These figures should lead to a major rethink by those, including some Fed governors, who think transient factors like cheap oil and the strong dollar are temporarily jamming the signal from the Phillips curve to the natural rate. The findings at the end of each series above are based on the last 20 years of data. None of us know the future, but when models fail like this, we must look under new rocks.... The Fed must be... data driven, not model driven. They can't know the natural rate with any confidence right now. They must know the weakness of the slack/inflation correlation. Add to those facts how critical it is for working people that we get to and stay full employment, and the bar to pre-emptive rate hikes should be extremely high...